Benefits of Long Term Investment in Stock Market

As soon as the clock strikes 9.15 am, an intraday trader sets his unflinching gaze at his computer screen. The market movements determine whether he will have a frown face or a happy face towards the day end. The reason being, the market is highly uncertain, volatile and unpredictable. This makes intraday trading a gamble rather than a good investment. On the other hand, long term investment is safe, secure and saves you from the day-to-day market hassles.

Investing for the long term offers countless benefits that traders who try to time the market or day traders cannot take advantage of. We at Indira Trade, share with you benefits of long term investment.

Benefits of Holding Stocks for the Long Term

• Better Long Term Returns

Long term investments fetch better returns. Stocks outperform over a period of time giving exorbitant returns to the long term investors as compared to short term traders. Long term investment overrules short term market fluctuations and gives study returns. All you have to do is, focus on good performing companies and see your portfolio grow.

• Advantage of Compounding

Long term investment allows you to take the advantage of compounding. Compounding is reinvesting your profits (i.e.bonus, dividends, etc.) over time to generate even higher profits.With long term investment, you get an opportunity to roll over the profits into other promising stocks to fetch you more income. Thus, you are earning income from the income in the form of compounding.

• Beat The Market Volatility

Short term investors and intraday traders wake up at the opening bell every day and decipher if their portfolio exploded or took a dive overnight. However, long term investors have an upper edge in this regard. With the long horizon, they automatically discount the short term hiccups that every stock goes through in its life cycle. Long term investment yields positive results and clears off all the road blocks of a short term investment.

• Lower Capital Gains Tax Rate

Holding your investment for long term (i.e. more than a year) saves a lot on your taxes. A long term investor pays far less tax as compared to an active trader. Short term traders pay tax at the top marginal tax rate that can be as high as 39.6%. On the other hand, long term investors are taxed at a maximum rate of 20%.

• It Takes Emotions Out of the Equation

People who deal in the stock market are bound by emotions. They claim to be long term investors until the market crashes down. As soon as they see a downfall in the market, they start withdrawing their money for the fear of additional losses. Little do they realise that they are falling into the trap of short term market volatility. In such situations, a long term buy and hold strategy saves you from the volatility and yields far better returns.

• Savings on Brokerage and Taxes

When you buy or sell any stock, you have to pay a brokerage plus plenty of taxes and cesses which are levied on every transaction. Unfortunately, the brokerage cost in India is very high. Day traders and short term investors have to pay more brokerage as they indulge in frequent buying and selling of stocks. However, a long term investor who buys the stock and holds it for a long period refrains from active buying and selling and thereby saves a lot of money on brokerage, cess and taxes.

ConclusionLong term investments if done systematically and strategically, can yield great returns. Once you decide to become a long term investor, choose your stocks carefully based on your risk tolerance and desired returns and most importantly stick to your plan. Do not get carried away by short term profits.

With countless benefits of long term investment, you must also keep in mind that long term investment brings high risk and offers limited liquidity. But all said and done, the advantages of long term investments are many and it makes for a great investment strategy. Refer to our blog on ‘What is the Right Type of Strategy - Intraday, Short Term or Long Term’ to learn more about the right trading strategy.Open a Demat account with “Indira Trade” and experience hassle-free trading with us.